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John Pearce admits that being responsible for managing the risks of an entity that accounts for about 25% of New Zealand's exports is a considerable undertaking.
“There's quite a responsibility there when you think about it, I suppose, but I don't tend to focus on this all that often,” said Mr. Pearce, general manager, policy and risk for Auckland, New Zealand-based Fonterra Co-operative Group Ltd., the world's largest diversified milk processing company.
“It's even more of an issue when you think that there are a couple of sites in New Zealand that account for a meaningful percentage of exports on their own. We have some very large dairy factories,” he said.
“It's an important responsibility for the country,” he said. “It has advantages, because I think we work very well with the government. It's a productive relationship, but we also have a lot of people looking over what we are doing to make sure it is right for the country as well as right for the company.”
Since joining Fonterra in 2006, Mr. Pearce has:
• Instituted an enterprise risk management process that extends throughout the company (see related story);
• Created a framework to deal with a multitude of risks in New Zealand and beyond (see related story);
• Worked to extend Fonterra's risk management philosophy beyond the company into its suppliers (see related story).
These and other achievements earned Mr. Pearce a place on Business Insurance's 2012 Risk Management Honor Roll®.
And he has done so with a staff of seven to deal with the risks of an enterprise with 17,000 employees around the world.
“John's significant impact on Fonterra's risk management has been to implement a system which embeds risk management into our everyday business,” said Fonterra General Counsel David Matthews, to whom Mr. Pearce reports.
“Any kind of business activity involves taking risk and managing risk, often without any recognition that this is occurring,” he said. “It is important for large organizations to have a system which provides a consistent and uniform framework to think about and deal with risk. John has led the establishment of this system in Fonterra.”
“Risk management has come a long way in Fonterra since John joined the company in 2006,” said Grant B. Milne, country head for Marsh New Zealand Ltd., a Marsh Inc. unit, which is Fonterra's global broker. “Fonterra now has a comprehensive enterprise risk management program incorporating governance, risk, compliance, business continuity and crisis management. John developed and implemented an enterprise risk management policy and framework for reviewing and quantifying risks across the Fonterra Group globally.”
“John's communication skills combined with his passion for risk management have enhanced the effectiveness of the various risk management programs and the overall acceptance by senior management at Fonterra that risk management is an integral part of their businesses,” said Mr. Milne.
Mr. Pearce's commitment to risk management extends beyond Fonterra. He is actively involved with OB-007, the standards committee responsible for the risk management standard for Australia and New Zealand. Australia and New Zealand have an agreement on standards that often sees committees representing organizations from both countries combining to develop key standards. He represents the Dairy Companies Assn. of New Zealand on the committee.
“OB-007 is constantly looking to harmonize standards so we have a common approach to managing risk,” he said.
“In Fonterra, our program is kind of multidisciplinary in that when we're talking risk management, we've got risk management in the business area, we've got the same program adapted to property, we've got the same program adapted to warehousing risks, including third-party warehousing, and we have also adapted it to process risks, acquisitions, projects and the like,” said Mr. Pearce.
Mr. Pearce said that another challenge for risk management, although not the biggest, is that Fonterra is running the risk management program on spreadsheets, and “we do need eventually to invest in a system to be able to manage the volumes of data.”
“My fear is that most systems I have looked into want to prescribe how to do risk management,” he said. “We need a system that will support the way we want to do risk management.”
In addition, “New Zealand's reputation as a clean and green country is very important to us, and Fonterra's actions are in line with preserving and enhancing the image,” he said.
Not surprisingly, another challenge for Fonterra is its geographic location, said Mr. Pearce.
“New Zealand is far away from just about everywhere, which means we have some unique supply chain challenges and sovereign risk, which is an exposure for Fonterra because we are subject to local in-market laws that can change overnight without necessarily having any notification.”
Fonterra Co-operative Group Ltd.'s philosophy of managing insurance is straightforward: None of the individual businesses within the Auckland, New Zealand-based milk processing company is allowed to buy its own insurance without approval from either the chief financial officer or John Pearce, general manager, policy and risk.